Payday Lenders Facing Legal Challenge, Possible Legislation

LITTLE ROCK, AR – While opponents of payday lenders await a state Supreme Court ruling on whether fees charged for short-term loans are actually interest, legislation is being drafted that would outlaw the practice in the state.

“It’s nothing but a debt trap for people living from paycheck to paycheck,” said credit union president H.C. Klein, who is chairman of Arkansans Against Abusive Payday Lending, a coalition formed to fight the payday lenders.

Last year, Arkadelphia attorney Todd Turner filed a lawsuit in Pulaski County Circuit Court arguing the Arkansas Check Cashers Act of 1999, which regulates the check-cashing industry in the state, is unconstitutional.

He said the fees charged by the companies, often reaching triple digits, are actually interest and illegal because they are in excess of the rate allowed by the state constitution. Payday lenders target the poor, elderly and unsophisticated borrowers, trapping them in an endless cycle of payments, he argued.

Circuit Judge Barry Sims later dismissed the lawsuit, which also challenged the state Board of Collection Agencies for granting the licenses to the payday lenders. Earlier this year Turner appealed that ruling to the state Court of Appeals, which then referred it to the state Supreme Court.

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